March 5 (Bloomberg) -- Money-market rates for euros and pounds climbed to the highest since mid-January, signaling the global squeeze on short-term bank lending may be returning.

The three-month London interbank offered rate, or Libor, for euros advanced 1 basis point to 4.40 percent today, the highest since Jan. 18, the British Bankers' Association said. The rate for pounds gained half a basis point to 5.77 percent, the 12th straight daily increase and the highest level since Jan. 7, according to the BBA.

Rising borrowing costs suggest a combined drive by central banks to promote interbank lending has had limited success. Rates began surging last year after the collapse of the U.S. subprime-mortgage market and mounting financial losses left banks wary of lending to all but the safest borrowers. Financial institutions may face at least $600 billion of writedowns, UBS said Feb. 29.

``We might be seeing the return of funding pressures in the interbank market,'' a team of strategists at Citigroup Inc. led by New York-based Tom Fitzpatrick wrote in a report today.

Borrowing costs fell earlier this year after policy makers from the U.S., U.K., euro region, Switzerland and Canada announced plans on Dec. 12 to counter the credit shortage as it threatened to derail economic growth. The ECB injected a record $500 billion into the banking system on Dec. 18. The Federal Reserve provided $160 billion in short-term loans since mid- December in six auctions through the Term Auction Facility.

`Elevated' Spreads

The difference between the rate banks charge for one-month dollar loans in London relative to the overnight indexed swap rate, the so-called Libor OIS spread used by the Fed as the minimum bid level at its auctions, suggested a decline in the availability of funds. The spread increased to 52 basis points today, from 30 basis points a week ago. It averaged 6 basis points in the first half of 2007 and 41 basis points since then.

Overnight indexed swaps are derivatives in which one party agrees to pay a fixed rate in exchange for receiving the average of a floating central bank rate over the life of the swap. For swaps based in U.S. dollars, the floating rate is the daily effective federal funds rate.

``Spreads remain elevated despite the close of the fiscal first quarter for brokers, reflecting in part elevated credit risk from financial balance-sheet issues,'' Hans Mikkelsen, an analyst at Bank of America Corp. in New York, wrote in a report.

The three-month rate for dollars declined 1 basis point to 3 percent, the lowest level since March 2005, the BBA said.

$180 Billion Writedowns

The difference between what banks and the government pay for three-month loans also indicated an increased reluctance to lend. The so-called TED spread widened to 1.39 percentage point today, from 1.37 percentage point yesterday and 1 percentage point a month ago.

Banks' asset writedowns and credit losses, including reserves set aside for bad loans, exceeded $181 billion since the beginning of 2007, data compiled by Bloomberg based on statements and filings from 45 of the world's biggest banks and securities firms show. Credit Agricole SA, France's second- largest bank by assets, posted its first quarterly loss today since the company went public in 2001 after adding to writedowns linked to U.S. subprime mortgages.

``Banks are a little less glib this time and a little more sober than three or six months ago when many suspected the credit crunch would blow over,'' said Marc Ostwald, a fixed- income strategist at Insinger de Beaufort SA in London. Rates ``are definitely creeping up and it's substantial,'' he said.

`Further Shocks'

At 4.40 percent, the three-month euro rate is 40 basis points above the ECB's main refinancing rate, up from an average of 25 basis points in the first half of 2007. The corresponding rate for pounds, at 5.77 percent, is 52 basis points higher than the U.K. central bank's benchmark interest rate, compared with an average 34 basis points in the first half of last year.

Fed Chairman Ben S. Bernanke urged lenders in a speech yesterday to forgive portions of mortgages for more borrowers whose home values have declined, highlighting the deepening threat from house prices dropping below mortgages. Former Bank of England Governor Edward George said today markets are vulnerable to ``further shocks'' from banking writedowns.

``It's too soon to say the liquidity crisis is over; we may well see further shocks as year-end financial results are published,'' George, who led the U.K. central bank from 1993 to 2003, said in Edinburgh. ``I used to be Bank of England Governor, and I'm rather glad that I'm not today.''